After a decade of cautious optimism over economic, social, and political gains, Latin America is again a region in flux. Growth has slowed for most countries, and the inclusionary trend is at risk, as the increased social spending fueled by the commodity boom has come to an end. Democracy seems more fragile as well, with voters confronting economic and social reversions as well as pervasive corruption scandals and creeping authoritarianism. Whereas the first half of the 2000s offered the promise of a new, more inclusive, more democratic Latin America, the second decade has raised concerns about the sustainability of those gains and the extent of possible reversion.
“Why Latin American nations fail” is therefore an apt question, and this volume is a timely addition to the search for ways to approach the problem. The title explicitly evokes Daron Acemoglu and James Robinson’s Why Nations Fail (2012) and shares with it a concern for the role of institutions in the development process. But the book actually offers a critique of Acemoglu and Robinson and the institutionalist turn in economics more broadly, as well as a critique of both neoclassical economic and neoliberal approaches.
The central argument of the volume is that economic development depends, on the one hand, on innovation and technological change and on the other hand, on demand-led growth. While the new institutionalism makes property rights the central focus, the contributors to Why Latin American Nations Fail argue that property rights are insufficient. Instead, institutions that foster innovation and promote expansion of demand really drive development. Thus, very much in contrast to both new institutionalist and neoliberal arguments, the editors and the contributors collectively make a case for an interventionist state (albeit an effective one).
The book’s greatest strength lies in the series of chapters that develop explicit critiques of Acemoglu and Robinson specifically and the new economic institutionalism generally. For example, the editors’ chapter on institutions and property rights begins by showing the affinity between new institutional economics and neoclassical theory. Neoclassical theory cannot account for sharp variations in per capita income and growth relying on standard measures of inputs. The new institutional economics solves that dilemma by showing that the differences stem from variations in governance structures; specifically, inclusive versus extractive institutions. The former constrain the arbitrary exercise of state power while the latter discourage investment and innovation because they do not. Inclusive institutions depend on well-defined and well-enforced property rights. Thus, for Pérez Caldentey and Vernengo, new institutional economics is a necessary companion to neoclassical theory because “exchangeability requires appropriability” (46).
However, their affinities and shared ontology lead to similar problems. Both theories rely on a deductive framework that assumes the invariability of human behavior over time. This ahistoricism shapes the new institutional economics’ tendency to draw on hand-picked examples to support its claims. But a careful reading of history, the editors argue, reveals a more varied landscape, which calls into question the universality of such claims. Pérez Caldentey and Vernengo illustrate this with discussions of two areas of complexity. The first area compares Spanish colonization with British colonization, noting that the British experience contained crucial exclusionary and extractive elements, through its treatment of indigenous populations but even in its system of patents and property rights.
In the former case, the authors make the more controversial claim that the Spanish encomienda system was actually more inclusive and integrative of diverse people’s customs, cultures, and governing structures than is usually assumed, and certainly more so than the brutally exclusionary British colonial project. In the latter case, the authors show that innovation in both Britain and the American colonies occurred despite a burdensome patent system, with most innovators not even registering their inventions, to avoid it. This observation leads to the second and more critical area of emphasis: the historical record shows that state intervention played a vital role in fostering innovation, not only in early industrializers but critically in the late-twentieth-century success stories of Korea and Taiwan. In short, the state’s capacity to intervene and override property rights played a central role in the development story.
The critique of Acemoglu and Robinson and ahistoricism continues in two excellent contributions by Miguel Centeno and Agustín Ferraro, and Alejandro Portes and Jean Nava. Centeno and Ferraro address the question of bureaucratic autonomy and the prevailing institutionalist assumption that constraints on executive discretion are necessary because of the intersection of rent-seeking elites and corrupt politicians. The authors acknowledge the limits to Latin American success in promoting development, but argue that while some failures are due to predatory officials, in many cases they are the result of well-intentioned officials’ operating with flawed institutional designs.
In the latter case, the problem is that Latin America draws on legal traditions and political values that explicitly reject the bureaucratic autonomy identified by Peter Evans and others as crucial for a successful developmental state. Latin American constitutions enshrine the notion of presidential supremacy and intentionally subordinate bureaucratic agencies to executive authority. The authors agree with Acemoglu and Robinson’s conclusion that too much presidential intervention undermines development outcomes (and offer two case studies, the case of CORFO in Chile and the Brazilian computer industry). But the sources of those interventions were not predation. Instead, they stemmed from well-intentioned beliefs that “organizations are most effective, as a whole, if there is a clear and final authority for all important decisions” (76).
Portes and Nava extend the discussion of the limitations of institutional analysis by focusing on the tendency to look at the national level as an aggregate, despite extensive variations in quality both at the national level and subnationally. They further note that the existence of optimal institutions (secure property rights, constraints on executive authority, and relatively equal distribution of income) is not sufficient to ensure that agencies engage actively with strategic actors to produce innovation. That requires some sort of embeddedness, as Peter Evans argued. But it still leaves the problem of explaining variations within countries; that is, “how different types of institutions emerge and what consequences they have for economic growth and social equity” (92).
The remainder of the chapter—almost certainly part of a much larger project—is arguably the best section of the book. Portes and Nava lay out a research framework for assessing and explaining organizational quality that takes institutions as the unit of analysis, rather than countries. The authors combine some of the emphases of the new institutional economics (meritocracy, immunity to corruption, and the absence of entrenched cliques), add Peter Evans’s embeddedness (which they relabel as proactive engagement with strategic actors), as well as openness to new technology and external allies in top officialdom. They then use qualitative comparative analysis (QCA) to assess these 6 predictors in 29 cases across 6 countries to arrive at nuanced conclusions about the determinants of institutional adequacy or contribution to development. Together, these three chapters critiquing Acemoglu and Robinson and the new institutional economics offer strong building blocks for a research agenda that deepens our understanding of how and why institutions promote development.
As intriguing as these chapters are, the rest of the book suffers from the more serious problems associated with edited volumes. There are no weak chapters, but the rest of the book does not share the same unifying focus. The authors are united by a common belief that innovation is vital for development, that active state intervention is necessary to support and promote it, and that the demand side matters for growth (and equity). But beyond that broad, shared perspective, the book as a whole feels diffuse.
The second half of the book looks at post–commodity boom challenges, and much of it is a good review of key limitations to continued growth and social improvements in the region, including an excellent chapter on Chinese investment and social and environmental concerns that does not clearly fit in with the rest of the volume. All of it is worth reading, but it is not clear why all these chapters are grouped together. An introduction or conclusion that offered a strong synthesis, lessons for theory building, and perhaps a roadmap for future research might have been able to produce a genuinely cohesive argument about how all these chapters point to a way to answer the question of why nations fail. The book still is worth picking up and reading for its chapters’ individual insights on contemporary development challenges, and especially for the provocative material critiquing and building on the new institutionalism. In the end, however, we are still awaiting a cohesive, nuanced, historically grounded argument about why Latin American nations fail.
